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Find Out if You Need to File a State Tax Return
Business Tax Information

Find Out if You Need to File a State Tax Return

December 8, 2021

Depending on where your company is doing business there may be a separate and independent requirement to file a state tax return. Failure to file on time may result in interest and penalties.

Compounding on the already complex nature of taxes is that tax laws, filing due dates, rates, procedures, forms and regulations vary from state-to-state. To help you sort through the confusion, below is an outline of what you need to know to determine if you are required to file a corporate state tax return.

State Requirements

One quick qualifier is understanding that there are a few states in the US that do not charge state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.  If your company earns income in any one of the other 41 states or the District of Columbia, you will likely need to file a state income tax return.

Nexus

Nexus means that you file and pay state taxes on sales for the state(s) in which you do business. For example, if you are doing business in Chicago, you must file and pay Illinois state taxes.

Most states impose tax on income or on corporations with sufficient connection nexus. That is, if they have “sufficient physical presence” with the state.

Most taxpayers have a tax home where they live and work, and file one tax return in that state.  Taxpayers earning income in a state other than their tax home must file a state tax return in that state(s).  The tax rate may be fixed for all income levels, taxpayers of a certain type or graduated. Most states conform to federal rules for determining gross income, timing of recognition of income and deductions, and most aspects of business deductions.

Deadlines

Filing due dates vary from state to state. Fortunately, the American Institute of CPAs (AICPA) has compiled a helpful list of states and their corresponding corporate state filing deadlines here.

Payments

You will not pay taxes twice. The US Supreme Court rules that two states cannot legally tax the same income. This exempts the taxation earnings and other sources of income taxed elsewhere.

Penalties

Penalties for not filing a state tax return can be just as harsh as those imposed by the IRS.  Every state, including those with no income tax, has a state taxing authority. These authorities have the power to examine the returns filed with it. Each has a tax collection mechanism, impose penalties and interest for failing to file or pay taxes, or filing late.

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